Crazy APRs: payday loans, BNPL and other rockets
There is a law in this country that says a lender can never take back more than double what you borrowed. Read that again. Parliament had to write down, in law, that £100 borrowed cannot cost more than £200 to repay. Laws like that do not get written for fun. They get written because of what was happening before: loans advertised at over 5,000% APR, aimed at whoever was most desperate that week. This page is a tour of the rocket zone, with the price tags left on.
Some borrowing is so expensive the law caps it. Payday-style loans are limited to 0.8% interest a day, a £15 default fee, and a total bill that can never pass double the amount borrowed. Buy now pay later charges no interest but runs on late fees and on making spending painless. Both are built for repeat customers.
How fast is the meter running?
Percentages hide things, so put the meter in pounds. Borrow £100 for one month and here is roughly what the timing costs on each product.
Look at that third bar and remember it is the capped version: 0.8% a day is the most the law now allows. Run 0.8% a day for a whole year with compounding and it works out above 1,700%. That is why payday adverts show four figure APRs. Before the 2015 cap, some advertised representative APRs above 5,000%. The cap did not make these loans cheap. It made them merely twenty times dearer than a bad credit card, instead of a hundred.
The payday pitch, translated
The pitch is speed and smallness: money in minutes, just a couple of hundred, sorted by payday. Every word is aimed at one moment: you, at your most squeezed, needing this week solved. Nobody at their most squeezed reads a rate table.
Translate the pitch into the actual trade: borrow £200 for 35 days and the interest can legally reach £56. If payday arrives and repaying £256 would leave you short again, the product has a helpful answer: borrow again. That is not a flaw in the design. That is the design: the model is called repeat borrowing, and the caps exist precisely because the spiral was eating people. The law even had to add the £15 cap on default fees, because missing a payment used to be its own profit centre.
Buy now, pay later: the trap with no interest
BNPL looks like the opposite of a payday loan: 0% interest, pastel branding, a checkout button. So where is the trick? Not in the rate. It is in the design. There is now a full page on buy now pay later, including what the 15 July 2026 rules did and did not hand you.
Splitting £120 into four payments of £30 is not a payment plan, it is an anaesthetic. The price stops feeling like £120. Do it at five shops and you have £600 of debt that never once felt like debt: no application, no rate table, no moment where your brain did the accounting. Then the instalments from every app land in the same week, and the "free" credit starts charging: Klarna adds a £5 late fee per missed payment (up to £10 an order, after a seven day grace period), Clearpay £6, and missed BNPL payments can now appear on your credit file for real lenders to read.
And notice the tell. From 15 July 2026, UK law finally treats BNPL as what it is: credit. Providers must now check you can afford it, give you clear information, and answer to the Financial Ombudsman when things go wrong. Ask yourself why "harmless" instalments suddenly needed affordability checks and an ombudsman. Because the harmless version was leaving too many people in exactly the state this page is about.
Every product on this page shares one shape: it is easiest to get exactly when you are least able to repay it, and its business model prefers you to come back. The spiral starts the day you borrow to repay other borrowing. That single move turns three small debts into one growing one, and the growing one is always at the worst rate you qualify for.
If you are already there: this was engineered, it is not a personal failing, and the way out is not another loan. Free, judgement free debt advice exists (StepChange and National Debtline are charities, not lenders), and lenders are required to treat people in difficulty fairly, including freezing things while you get help. Talking to a debt charity costs nothing and is the single highest value move on this whole site.
The moves
- Urgency is the salesman. Any loan that must happen in the next hour is a loan designed to skip your thinking. Twenty four hours of delay costs nothing and breaks the spell.
- Count every BNPL plan you have open, right now. Most people underestimate. The total across all apps is your real debt, whatever the apps call it.
- Never borrow to repay borrowing. That is the spiral's front door. Free debt advice first, every time.
- Check the double rule. On a payday-style loan you can never legally repay more than twice what you borrowed. A demand above that is not a debt, it is a breach: get advice.
- If you need small credit, look at a credit union. Community lenders whose loan rates are capped by law, built to be what the rocket products pretend to be.
- Your overdraft is not spare money. At around 39.9% it is one of the dearest ways to borrow in mainstream banking. Treat the red as a rocket, not a cushion. (Overdrafts)
- The payday caps. MoneyHelper: payday loans: 0.8% a day, £15 default fee cap, never repay more than twice the amount borrowed.
- The BNPL rules. Which?: the new buy now pay later rules: in force 15 July 2026: affordability checks, clear information, Financial Ombudsman access.
- The late fees. Which?: Klarna late fees: £5 per missed payment, capped at £10 an order, seven day grace; Clearpay charges £6.
- The overdraft rate. HSBC overdraft calculator: 39.9% EAR variable. Checked 25 August 2026.
- The before times. Payday loans in the UK: the market the 2015 caps were written to stop, including advertised APRs above 5,000%.
- Our arithmetic. £2.65 is one month at 36.8% APR; £2.84 is one month at 39.9% EAR; £24 is 30 days at 0.8% a day; £56 is 35 days at 0.8% on £200. Reproduce any of them on a calculator.
Questions people ask
Why are payday loan APRs over 1,000%?
Because APR states a yearly rate, and these loans charge by the day. Even the legal maximum of 0.8% a day compounds to more than 1,700% over a year. The point of quoting APR is exactly that it makes short expensive loans comparable with everything else, which is why the industry preferred talking about "£24 per £100" instead.
Are payday loans illegal in the UK?
No. They are legal but capped: 0.8% a day maximum interest, £15 maximum default fee, and total repayment can never exceed double the amount borrowed. Several of the biggest names from the boom years collapsed after the caps arrived and compensation claims followed, which tells you what the old model actually was.
Is buy now pay later bad?
Used once, deliberately, for something you could buy outright anyway, it is close to harmless. The danger is the design: instalments make prices feel smaller, stacking plans across apps hides the total, and late fees plus credit file marks arrive if one week goes wrong. Since 15 July 2026 it is regulated like the credit it always was. Treat it accordingly.
What happens if I miss a Klarna payment?
Klarna retries, sends reminders, and after a seven day grace period adds a £5 late fee (capped at £10 per order, and never more than 25% of the order). The bigger cost is quieter: missed BNPL payments can be reported to credit agencies, unpaid debts can go to collection, and future applications get harder. Missing one payment is recoverable: deal with it inside the grace week.
I already have a payday loan I can't repay. What do I do?
Do not roll it over and do not borrow elsewhere to cover it: that is the spiral. Contact a free debt charity first (StepChange or National Debtline), tell the lender you are in difficulty, and remember the law is on your side: total repayment can never pass double what you borrowed, and lenders must deal fairly with people in trouble. None of this costs anything, and thousands of people your age do it every month.
Read next
- APRWhat is APR? The number that decides everything
- DebtStore cards: the shop's favourite trap
- CreditWhat is credit? (It's not free money.)
Last checked 25 August 2026. Figures are re-verified whenever this page is updated.